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TradeFred Daily Briefing
Thu 17-10-2019 12:00

In Brief:

  • Sterling volatile ahead of crucial Brexit meetings
  • Palladium soars to record highs
  • US stocks lose ground after poor retail sales
  • Cryptocurrencies tumble

Japan remained the biggest foreign owner of US Treasuries in August as China’s holdings continued to drop. Japan’s holdings of American notes, bills and bonds increased by about $44 billion to $1.17 trillion, the Treasury Department said in a monthly data release Wednesday. Japan overtook China as the largest non-US holder of Treasuries in June - the first time it has held that position since May 2017. China’s holdings decreased by about $6.8 billion to $1.1 trillion.

The UK and EU will not announce a Brexit deal on Wednesday, according to several published reports. But a deal could still be announced later in the week as it was unclear at what juncture negotiations were at. GBP/USD, which had been bouncing around on headlines throughout the trading day, retreated after the reports, but was still up 0.3% at $1.2827. ITV political editor Robert Peston tweeted that there was “now no chance of Brexit deal tonight. Not at all sure about what that means for what can be agreed by EU leaders on Thursday and Friday.”

Turkish Lira markets suffered a flashback of their suffocating March squeeze on Wednesday, as authorities moved to keep a lid on volatility after a week of US sanctions and legal charges. The cost of borrowing Lira using one-week FX swaps tested two-and-a-half-month highs going as high as 20.25% , with traders reporting - just as they did in March - that some local banks were restricting the supply of Lira to overseas counterparts. Moves were nowhere near as extreme as in March, however. The squeeze back then briefly sent the cost of Lira borrowing soaring past 1,000%. This time there didn't seem to be a blanket freeze from domestic Turkish banks, and swap rates had dropped to 17.3% as trading wound down for the day.

Oil prices eased on Thursday after industry data showed a larger-than-expected build-up in stocks in the United States, although losses were limited by comments by US Treasury Secretary Steven Mnuchin on a US-China trade deal. Global benchmark Brent Crude Oil futures (LCOc1) was down by 47 cents, or 0.8%, at $58.95 a barrel by 03:30 GMT. US Crude Oil futures (CLc1) were down 48 cents, or 0.9%, at $52.88 after earlier dropping more than 1% to a session low of $52.76 earlier. US crude inventories soared by 10.5 million barrels to 432.5 million barrels in the week to October 11, according to the American Petroleum Institute's weekly report, published ahead of official government stocks data due on Thursday.

Palladium soared to record highs for a second-straight day Wednesday to rule the roost in precious metals. Gold was also a modest gainer after dismal US economic data encouraged buying on rate-cut expectations. The spot price of XPD/USD reached an all-time high of $1,780.40 per ounce, up $10 from Tuesday’s record. It later consolidated, trading at $1,772.20 by 2:48 PM ET (18:48 GMT) for a gain of $33.75, or 1.9%, on the day. Palladium futures, traded on New York Mercantile Exchange’s COMEX division, registered its own record high at $1,722.20, an improvement over Tuesday’s $1,705.55. Palladium futures settled Wednesday’s regular trading on COMEX at $1,735, up $38.40, or 2.3%, on the day.

Shares of Hong Kong property developers rose on Thursday in Asia after the city’s leader announced a host of new measures in her policy address to solve the housing crisis. The measures included raising mortgage cap for first-time buyers, resuming private land and developing brownfield sites for more public housing. By 11:32 PM ET (03:32 GMT), shares of New World Development Co Ltd (HK:0017) gained 4.5%, while Henderson Land (HK:0012) and CK Asset Holdings Ltd (HK:1113) both climbed 2.9% respectively.

Asian stocks barely moved on Thursday as soft US retail sales data raised fears about the health of the world's largest economy, sucking the steam out of a five-session rally. South Korean, Australian and New Zealand indexes were all in negative territory. Chinese shares were mostly flat while Japan's Nikkei (N225) ticked up and US stock futures (ESc1) were barely changed. That left MSCI's broadest index of Asia-Pacific shares outside Japan (MIAPJ0000PUS) slightly higher with gains largely led by Hong Kong's Hang Seng index (HSI). The S&P 500 (SPX) shed 0.20% on Wednesday after data showed US retail sales contracted in September for the first time in seven months, in a potential sign that manufacturing-led weakness could be spreading to the broader economy.

China’s deepening economic slowdown and a glut of supply has pushed the nation’s office vacancy rate to the highest since at least 2008. The vacancy rate in 17 major cities climbed to 21.5% in the third quarter, according to CBRE Group Inc. The “spike” in vacancies this year is the worst since the depths of the global financial crisis a decade ago, said Sam Xie, the firm’s head of research in China.

Prime Minister Lee Hsien Loong said Singapore will be “lucky” to see positive economic growth in 2019, casting a dark tone over the nation’s outlook as exports continue to slump. “This year we’ll be well under 1%,” Lee said Wednesday at a conference in Singapore hosted by Forbes. “If we’re lucky we should be above zero, but the momentum has substantially diminished. And a lot of it is lack of confidence - uncertainty.” The government’s official projection is for growth to come in at 0%-1% this year, with the central bank saying earlier this week that expansion will likely be around the midpoint of that range. Growth has slowed sharply from 3.2% in 2018 as exports took a hit amid trade tensions between the US and China, two of Singapore’s biggest trade partners.

US retail sales fell for the first time in seven months in September, suggesting that manufacturing-led weakness could be spreading to the broader economy, keeping the door open for the Federal Reserve to cut interest rates again later this month. The downbeat report from the Commerce Department on Wednesday came on the heels of data this month showing a moderation in job growth and services sector activity in September. Signs of cracks in the economy's main pillar of support, ahead of the holiday season, could further stoke financial market fears of a sharper slowdown in economic growth.

Canada's annual inflation rate unexpectedly held steady at 1.9% in September, Statistics Canada said on Wednesday in its last major release of economic data before a national election, further reducing analysts' expectations the Bank of Canada will cut rates later this month. Canada is in the midst of a tight national election campaign with polls showing the governing Liberals are in a statistical tie with the opposition Conservatives, who have focused their campaign on issues related to the cost of living. Canadians vote on October 21.

A plan by the Japanese government to impose stricter rules on foreign investment in local equities will be “detrimental” to the market, impede the ability to raise funds and undermine seven years of market reforms, according to Goldman Sachs Group Inc. The Finance Ministry last week proposed a measure that would require foreign investors to report in advance when they plan to buy more than 1% of shares in companies related to national security, compared with the current threshold of 10%. The bill - which has been approved by the ruling Liberal Democratic Party - must now be greenlighted by the cabinet and then by both houses of parliament before becoming law. The changes are expected to be implemented in the fiscal year starting in April, Goldman said.

Cryptos tumbled on Wednesday after US and South Korean officials said they broke up one of the largest child pornography sites by following a Bitcoin trail. The bust was revealed after the US unsealed an indictment against Jong Woo Son, who allegedly operated a Darknet site that accepted Bitcoin and distributed pornography involving children in more than 1 million videos. Son, a South Korean, is serving 18 months in prison there. Authorities have arrested 337 sites users in 11 countries since the site was closed in March 2018.

See Also

In Brief:

  • Sterling volatile ahead of crucial Brexit meetings
  • Palladium soars to record highs
  • US stocks lose ground after poor retail sales
  • Cryptocurrencies tumble

Japan remained the biggest foreign owner of US Treasuries in August as China’s holdings continued to drop. Japan’s holdings of American notes, bills and bonds increased by about $44 billion to $1.17 trillion, the Treasury Department said in a monthly data release Wednesday. Japan overtook China as the largest non-US holder of Treasuries in June - the first time it has held that position since May 2017. China’s holdings decreased by about $6.8 billion to $1.1 trillion.

TradeFred Daily Briefing

In Brief:

  • Sterling loses ground vs USD & Euro
  • Asian stocks trade higher
  • New Zealand inflation accelerates faster than expected
  • Italy set to approve draft budget

The Pound pulled back from its highest level in almost five months versus the US Dollar on Wednesday, erasing some of the rally sparked by signs Britain is closing in on a deal to leave the European Union. Sterling also pulled back from its highest in five months against the Euro as investors took profit and prepared for a make-or-break summit between Britain and the EU on Thursday and Friday.

TradeFred Daily Briefing